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Fact of the Week: Megafirms’ Share of Novel Patent Applications Had Risen to 32–33 Percent by 2016

Fact of the Week: Megafirms’ Share of Novel Patent Applications Had Risen to 32–33 Percent by 2016

July 31, 2023

Source: Serguey Braguinsky et al., “Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data,” NBER Working Paper Series, no. 31460, July 2023.

Commentary: In a recent working paper for the National Bureau of Economic Research, economist Serguey Braguinsky and colleagues analyzed USPTO patent data and S&P Compustat data to examine the role of mega-firms on innovation and knowledge diffusion in the economy. Looking at novel patents, or innovations that combine technology components for the first time, the authors found that megafirms’ share of novel patent applications had risen to 32-33 percent by 2016 compared to 14 percent in 2000 and 22-23 percent in the early 1980s. They found that megafirms are more likely to produce novel patents even after controlling for time-varying characteristics, such as the total number of patents. Moreover, megafirms’ increased share in novel patent applications remains even after controlling for firm size, number of patents, and industry-by-year fixed effects.

Megafirms also generated more “hits,” or patents that lead to the most follow-on patents, yet a smaller share of follow-on patents was assigned to them. From 2007 to 2016, megafirms had 6 percent more follow-on patents than other entities and the probability of not having any follow-on patents was 1.7 percent lower than other entities. Of the most successful patents with the highest follow-on patents, megafirms’ share was 21.2 percent in the same period. This is partially because a high share of megafirms’ top “hit” patents combined ICT and non-ICT components. The authors also showed that despite megafirms’ increased share of patents, megafirms have fewer follow-on patents assigned to themselves compared to the baseline. In other words, megafirms promote innovation with more patents and also contribute to knowledge diffusion with more follow-on patents assigned to other firms. The authors conclude that regulatory intervention should only be introduced “if it is true that mega-firms are predominantly stifling innovation and slowing down knowledge diffusion…[otherwise] such an approach may backfire.”

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